The increased incorporation of crypto as a payment option of financial services platforms such as PayPal is causing a spike in the consumers’ interest in cryptocurrency. Despite that, individuals are not strategic with their approach towards investing in and trading cryptocurrency. There is a clear difference between investing in crypto and how celebrities or public figures invest in valuable items like artworks and gemstones.
If these traditional investment options are regarded as speculative and volatile, crypto is the wild on this. Daily, there are new coins, communities and platforms in the industry. As a result, it is important to understand how you treat cryptocurrency investment compared to traditional investment.
Cryptocurrency Addition to Your Portfolio
While there are different approaches to perceiving cryptocurrency, it is important to understand that there is an entirely personal decision to engage cryptocurrency either as a currency to make payments or as an investment portfolio.
If you choose to approach cryptocurrency as an investment, you only need to invest a proportionate amount you are willing to let. Meanwhile, you don’t have to worry about that if you only use it as a payment option for goods and services. On the other hand, there is a group of people who lies in the middle spot. They do not see crypto as an asset or a currency. They believe you can use it for both at the same time.
This particular stance makes it interesting for users to get drawn to crypto. Likewise, it confuses some sets of people.
The advent of Bitcoin brought the experience of individuals adding Bitcoin to their investment portfolio. This is because a series of financial advisors sold the Bitcoin with the propaganda of inflation hedge and the potential to be a gold substitute. This inflation hedge resulted from Bitcoin having a fixed issuance. That is, there is an established limited supply of Bitcoin, about 21,000,000 bitcoins.
This inbuilt scarcity has an advantage because financial advisors were seeking protective ways to keep the original values of their portfolios. During this time, the U.S. government printed lots of money, contributing to inflation and low purchasing power.
Aside from the inflation hedge, crypto is blockchain-dependent, and this infrastructure system is more efficient at processing transactions. This technology can be leveraged to create other disruptive innovations in the crypto space. We are experiencing an instance with non-fungible tokens (NFTs), which are changing business approaches in the financial industry.
Blockchain technology and cryptocurrency are becoming the next modern platforms for businesses to thrive, record their transactions and dominate the industry.
Treating Cryptocurrency as an Investment
Another important that must be considered is how investors want to treat cryptocurrency. About 90% of them want to test the waters, observe their investments, and evaluate if they are worthy. Regardless of the numerous advantages of blockchain and cryptocurrency, financial advisors and planners encourage their clients to be speculative with crypto.
This includes not investing more than 5% in crypto. However, the major take is observing due diligence before making an investment call to add a coin to their portfolio. This includes understanding its use cases, future potential, and how it can enter the present market while leveraging community support. Money invested in crypto should be money you have decided to play around with.
Meanwhile, it is also pertinent to double-check an individual’s risk tolerance before involving in crypto investment. Your risk tolerance may revolve around $100 while another person may peg it at $5,000. Risk tolerance is a composite of your personality and the gut you have towards embracing volatility. Likewise, cast your financial safety net.
That’s because you should not engage cryptocurrency with your life savings. However, you can participate in making more profits in this innovation if you can afford it.
Tax and Cryptocurrency
As with every other asset or purchase made, the government has its ways to obtain a return from the citizens. This is known as tax policy. This policy ensures that a certain percentage of citizens’ transactions get to the state and federal pockets. The same applies to cryptocurrency. While there may not be final tax regulations for crypto, users are careful about its tax implications.
Although some updated tax policies now make users fill crypto as part of their income. For instance, when you hold crypto for over a year, you may have to record it as capital gains. Otherwise, if you were paid in crypto for your services, that will be recorded as an income. But some advice were dished to crypto participants and users.
It is the ultimate advice of recoding the exact value of any crypto you received when you received it. This will help your tax filings, and the implications will be minimal. Likewise, record your profits and loss in the process.
Although clarifications are surrounding the tax implications of transacting cryptocurrency, those tax laws will still come. But it is important to protect oneself from being a lab rat. It is noteworthy that the number of gains accrued by your crypto portfolio may increase your tax bills.
Instead of selling those coins, you can advise your investors to employ them for different means. It may be using them as collateral for loans or using them as payment for real estate property. Whatever the case may be, individuals are on the lookout for the kind of tax laws in place sometimes soon.
Has Crypto Changed Financial or Investment Behavior?
The existence of cryptocurrency has had little or no significant effects on an individual’s behavior towards finance and investment. It gives more insight into the true state of such behavior because of its volatility.
Thus, you must help your investors recognize a reasonable amount to invest in crypto after conducting due diligence. Likewise, you must confirm tax implications attached to investing or trading cryptocurrency.